Friday, July 11, 2008

Anatomy of a Trade: WYNN

I shorted 500 shares of WYNN8 days ago at $85.03 based on a "dirty bear flag" setup. While technically not a bear flag, the stock had broken support on was pulling back up to the resistance point. Volume distribution pattern was bearish, meaning heavy down days with low volume up days.

That same day the stock closed at $79.26. While I was planning a swing trade with my target around $70, the one day drop was too good to pass up. This is where I have evolved as a trader. In the past, the greed factor would have caused me to fear losing my profits and I would have exited with a $2500 gain. To combat this urge, I now allow myself to exit in stages. I know some traders frown on this, but I understand my own psychology, plus feel that locking in profits and managing trade exits is a great strategy.

I took partial profits by exiting half my position at $80.10 for a $1232 gain. I moved my stop to the short entry level to lock in the profit. The rest of the trade was what I like to think of as a free trade. I am bascially guaranteed making $1232 on the trade, but could make much more.

Today my target was hit, so I exited the remaining positon at $70.14 for another $2490 gain. What would have been $2500 if I had given in to my impulses turned into a $3722 trade.

The WYNN trade is why I often preach about trade management. There are three major elements that make a good trader: stock picking, risk and trade management. It's not that difficult to find good trades. However, making the most of those trades is what seperates the "men from the boys".